Enforcing Consumer Protection Laws

 

The Federal Reserve has a comprehensive program to examine financial institutions and other entities that it supervises to ensure compliance with consumer protection laws and regulations. Its enforcement responsibilities generally extend only to state chartered banks that are members of the Federal Reserve System and to certain foreign banking organizations. Other federal regulators are responsible for examining banks, thrift institutions, and credit unions under their jurisdictions and for taking enforcement action.

Each Reserve Bank has specially trained examiners who regularly evaluate banks’ compliance with consumer protection laws and their Community Reinvestment Act (CRA) performance. Most banks are evaluated every forty-eight months, although large banks are examined every twenty-four months and poorly rated banks are examined more frequently.

To make the most effective and efficient use of resources while ensuring compliance with consumer protection laws and regulations, the Federal Reserve uses a risk focused approach to supervision, focusing most intensely on those areas involving the greatest compliance risk. Examinations always include a comprehensive assessment of an institution’s CRA performance in order to present to the public a full and fair portrait of the institution’s efforts. Examiners also assess the broad range of large complex banking organizations’ activities to determine the level and trend of compliance risk in the area of consumer protection.

In accordance with the Community Reinvestment Act of 1977, the Federal Reserve reviews a bank’s efforts to meet the credit and community development needs of its entire community, including low  and moderate income neighborhoods; for example, it looks at the extent to which a bank has programs that contribute to the building of affordable housing and to other aspects of community development. When deciding whether to approve an application for a bank acquisition or merger or for the formation of a bank holding company, the Federal Reserve takes into account an institution’s performance under the CRA. An important aspect of the process is that it gives the public the opportunity to submit written comments on the proposal. These comments, which often provide insight into a financial institution’s CRA performance, are reviewed by Federal Reserve staff and considered by the Board when it evaluates an application.

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